Uncertainties in the economic analysis of Korea's preliminary feasibility study

초록

Preliminary feasibility studies (PFSs) have become Korea's unique budgetary and fiscal management system. With a critical role in decisions regarding the viability of a proposed project, a PFS prevents inefficient projects, contributing to securing a budget and thus improving fiscal efficiency. Since the introduction of PFS in 1999, until 2021, 767 corresponding studies have been conducted, and it has become an indispensable component of budgetary decision making in Korea. This study analyzes the uncertainty in forecasts of traffic, costs, and benefits in Korea's PFS through a case study of a road PFS project. The probability distributions of the forecasts were investigated based on the historical accuracy of the PFS; as a result, the probability of the benefit being higher than the forecast in the PFS case project was only 0.195, and the probability of the cost being less than 90% of the forecast cost was only 0.256. Accordingly, the probability of the benefit-cost ratio (BCR) higher than 1.0, which was the forecasted BCR result in the PFS case project, was only 0.048. Therefore, the economic feasibility evaluation of PFS exhibits a high level of uncertainty and vulnerability. This study reveals how forecasters can use empirical measures of the accuracy of past forecasts to consider the uncertainty of traffic forecasts, costs, and benefits of their PFS projects. The uncertainty window can aid in determining whether forecast uncertainty will change a project decision or propose alternative project options that can ensure economic feasibility. This study reiterates the necessity for decision makers to be aware of the uncertainty in their transport investment decisions, and highlights the necessity of introducing a new method for evaluating economic feasibility that does not rely on a single forecast value.

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